In the world of real estate investments, one of the basic knowledge real estate investors need to enrich themselves with is house appraisal. It is important to understand the value of a real estate property in order to be aware of the financial benefits and risks when investing in one. House appraisal is important not only for the property buyer, but also for the lender and seller. Here is what you need to know about the topic.
What Is House Appraisal?
House appraisal is the professional opinion that estimates the value of an investment property in the housing market, using official criteria. For example, appraisal can save the buyer from paying $400,000 for a house that is worth only $280,000. Meanwhile, as a seller, house appraisal can result in financial benefits for you if it shows that your house’s value has risen during the time you were living in it, or that the appraisal is above the contract price.
A house appraisal can also bring bad news if it proves that the value of the house is lower than the selling price. The transaction will be hindered as buyers and money lenders won’t want to pay more than a house’s worth, which leads the seller to sell off their property and buy elsewhere, instead of waiting for an all cash buyer.
How Is House Appraisal Different from House Inspection?
To ensure that you do not confuse house appraisal for house inspection, here are the simple differences between house appraisal and inspection:
- House appraisers are concerned with the value of the house; they focus on the obvious features rather than the specific details. Whereas, a house inspector makes note of the little details that determine the condition of the house, like heating system, for example.
- House appraisers focus on the permanent parts of the house (square footage, location, lot size, etc.), while house inspectors take the décor, furniture, and the little details into consideration.
Related: Why You Should Get An Inspection For Your Investment Property.
Who Conducts the House Appraisal and How Is It Done?
The appraisal is conducted by a certified and professional appraiser who is familiar with the local area. Appraisers usually go through intensive training and testing and have to have enough experience to do their job well. They also never stop learning and updating their information on real estate marketing.
It is important to remember that appraisers are human beings and can make mistakes from time to time. Thus, as a real estate investor you have the option of seeking different opinions of more than one appraiser.
What Does the House Appraisal Report Include?
When looking at single-family dwellings, appraisers usually conduct their appraisals using a residential appraisal report. The Fannie Mae Uniform Residential Appraisal Report is considered a standard form for appraisers because it offers uniformity.
Fannie Mae requires that all appraisers must certify to having experience in appraising similar properties in the same area. Based on the report, the appraisals must include the following:
- An exterior and interior assessment of the single-family house.
- A street map of the appraised property, along with the comparable properties used.
- The appraiser’s own analysis of and conclusions about the value of the property based on the observations he/she made.
What Are the Methods of Hiring an Appraiser?
Hiring an appraiser can be done in two ways:
1. If you want to apply for a mortgage, the money lender or an appraisal management company will hire an appraiser to determine how much money can be lent on the property. It is worth mentioning that companies usually hire the lowest-priced appraisers, which can negatively affect your appraisal. Therefore, always choose to hire a qualified appraiser even if it means paying more.
2. However, as a buyer, seller, or house owner, you will be hiring an appraiser directly if you want to know your property’s value before you get involved in a contract or even put your house up for sale. Appraisals are also crucial in estate lawsuits or settlements.
Related: What Are Some Ways To Make Extra Money in Real Estate Investing?
How Much Money Does a House Appraisal Cost?
House appraisals usually cost around $300, but it can be more depending on the value of the property. It is advisable to do your own estimate of similar sold properties in your area and present your own findings to the appraiser to help him/her come up with a more accurate appraisal.
A bad assessment can cost the seller thousands of dollars and fail to protect the lender/bank and buyer from a bad investment by letting them get stuck with a property that is worth far less than they have invested.
What Are the Different Approaches to House Appraisal?
There are two main approaches to house appraisal:
1. The sales comparison approach: In this approach, the appraiser compares your property with few other similar properties that were sold in your neighborhood/area, taking into consideration the main features of the real estate property like: the age of the house, lot size, square footage (for finished and unfinished space), garages, etc.
2. The cost approach: This approach mainly focuses on new real estate properties as it considers the value of the land and depreciation to determine a house’s worth.
How to Make Your Property Look More Expensive?
To make your house look valuable, take care of it as if you are the one buying it. Here is what you can do to ensure that your real estate property gets a high appraisal value:
- Fix what needs to be fixed; cracked plasters, water-stained walls, and pests are few things you can work on before letting an appraiser assess your house.
- Do not neglect the outside of your house; it is as important as the inside. Make sure that your garden yard or garage looks appealing and tear out the dead bushes and trees that harm your house’s appearance.
- Write down any repair or improvement works you’ve recently done in the house, along with how much they cost you and how recent they are. Appraisers do not notice these small details sometimes, therefore, it is advisable to provide your appraiser with a written list of your work, like a recently added patio or roof.
- Draw attention to any positive changes in your neighborhood, like new roads and facilities. Also, collect information about any comps that have sold out recently. Because the appraiser is not as familiar with your neighborhood as you are, he/she might miss important data that could work to your benefit.
- Make your house look new, regardless of how old it is. You have to pay attention to the necessary fixtures that should be in any modern day house.
- Do not hesitate to ask the appraiser to provide you with their previous work experience and education in house appraisal to prove that he/she is qualified for this job. It is your right to hire an appraiser who will do your property justice, so do not feel bad about asking for proof.
- Asking for a copy of the appraisal is also a part of your rights. If you feel like your real estate property deserves a better appraisal, you can ask for a copy of the appraisal from your lender or appraiser to look for any errors that can be corrected to your property’s benefit.
Related: Real Estate Investment Tips for Single Family Home Investors
To sum it up, house appraisal is a crucial process that real estate investors should familiarize themselves with. This is due to the fact that it can provide you with potential benefits based on professional insight.
In the world of real estate investments, house appraisal keeps you in touch with your logical thinking rather than letting you waste too much money on something that is worth less, just because you fell in love with its appearance. For more tips on and analysis of real estate investments, check out related blogs on Mashvisor.